The corporate bond market continues to see action with firms having raised R2.42 lakh crore between April and September, a 67% jump year-on-year, reports Bhavik Nair in Mumbai. In contrast, non-food credit continues to grow at a subdued pace of sub-10%. Following the cut in the repo rate by 50 basis points on September 29, yields on long-term bonds have fallen by close to 30 bps and as United Bank of India executive director Sanjay Arya explains, the better-rated firms prefer to borrow via bonds because it is cheaper to do so.
Companies looking for short-term money are tapping the commercial paper(CP) market — between April and mid-September, CPs worth R7 lakh crore have been issued, though a fair part of this would be rollovers.
Nevertheless, there’s been a near 40% year-on-year rise in CP issuances. Mutual funds are among the bigger investors in this market and many of them have abundant liquidity.
The lowest base rate in the industry is offered by State Bank of India (SBI) at 9.3%; some large private sector lenders have pegged their minimum lending rates at 9.35%. Even if they lend at the base rate, however, corporate bonds would be cheaper by about 100 bps given an investment- grade public sector unit can borrow at yields of close to 8.10%. Ajay Manglunia, executive vice-president (fixed income) at Edelweiss Securities, points out that the bond market is becoming more liquid with newer investors coming in. “For investment-grade companies, there is a wide spectrum of investors available,” he says.
Whether due to the volatility in the currency or because they aren’t looking for loans, Indian companies haven’t tapped the overseas markets as frequently this year as they did last year. Between April and August, firms raised ECBs worth $9.17 billion, almost 15% lower year-on-year.